Bhavin Shah: And then I guess just one follow-up for JD as it relates to the financial model. As we kind of think about the commentary you made on product revenue and kind of running promotions for longer on that side of the house in 4Q. How do we think about that as you release the fiscal ’24 in terms of your willingness to kind of run more promotions on that side of the house? And kind of what does that imply for product revenue for fiscal ’24?
JD Fay: Yes. I mean, I think we were always looking for the optimal approach to both revenue and unit sales and shipments in the product line, because we know it helps drive new subscribers, new subscriptions on a paid basis. And customers who invest in these Pro level cameras tend to be highly active, strong customers with high ARPA too. That’s why they make that investment, they want to use our platform. And so I think that the Black Friday, Cyber Monday opportunity was more of a special case built around a pretty significant holiday. So we don’t do that very often. But where we do see these pockets of opportunity, we want to be flexible and able to take advantage of them. Going back a bit further to Prime Day last year, in the middle of last year, it was another great example, one of our strongest shipment days and order flows for our Pro cameras ever in fact.
And so I think it’s just about being flexible in knowing where the market is and taking advantage of those pockets of demand to play the long game, which is to grow subscription revenue and engage with our customers on the software platform.
Bhavin Shah: The last one for me, just quickly back to your subscription revenue guide. You talked about improving kind of expansion rates as you go through ’24 and how Property Intelligence and other solutions is going to help drive better subscriber growth. How do we think about the timing of when that should really kick into gear? Is this something more the second half of the year? Or are you already starting to see the impact in terms of new solutions driving new subscriber growth?
JD Fay: Yes. We’re seeing both subscriber growth, as well as the expansion of average revenue as we talked about today. And we’ve seen that now over the last couple of quarters, and so we expect it to continue through 2024. We tend to have our greatest sequential growth in the middle quarters of the calendar year, so that I’d expect would continue. But with these higher net dollar expansion rates, higher ARPA, higher overall subscription revenue growth north of 20% over the last couple of quarters, again, I think that will continue throughout calendar 2024.
Operator: The next question comes from Brent Bracelin with Piper Sandler and Company.
Hannah Rudolph : Hi, guys. This is Hannah Rudolph on for Brent today. Thanks for taking my question. For you, RJ, it sounds like the business has a lot of different encouraging growth drivers ahead of it from AI to partnerships to new products to different verticals you’re going after. Can you talk about where you’ll focus your efforts for this year? And then for JD, can you talk about how you’ll balance all of these investments along with getting to profitability? Thank you.
RJ Pittman: Fantastic. Thanks, Hannah. First, the focus is really in two principal value propositions and being best-in-class industry-leading for both of them. Number one, focus property marketing. Really making sure that our all-in-one solution for our property marketers, whether it’s in residential real estate, nightly rentals, broader travel and hospitality and even commercial real estate, office space, facilities and the like are super critical for us to put all of those arrows, all the wood behind that particular arrow, all the features and functionality and partnerships you talked about, we’re directing our energy into two key areas, promote being the first. The second is facilities management and construction and design management.
That is a category that really reflects and is the epitome of the enterprise opportunity. And that category has been outpacing. It’s the fastest growing sector for us all last year, looks to be another strong year of growth in the category in 2024. And so making sure that we are also best-in-class in directing all the wood behind the arrow of facilities and construction management is very, very critical for us because the opportunity is enormous and we have a distinct product solution that really is set apart from anything that’s available in those respective markets today. So we have that distinct advantage to capitalize on, and those are the two areas that we’re going to bring all of this capability towards in ’24.
JD Fay: And on the financial model side, to that part of your question, Hannah, these investments that RJ just described and these new products are primarily in the software platform. So we’re continuing to invest in that software as a service business model and solution that has strong gross margins, and of course, it’s on a recurring revenue basis. So it repeats for us every month, every quarter. And we’ve actually grown our gross margins over the last year as well on the subscription side. So that’s performing quite well for us. So strong top line growth in subscription revenue with strong gross margins really helps create that growth in gross profit as part of this equation to profitability. And then on the spending side, those investments themselves, as you may recall, we worked on improving the efficiency of our operations in the back half of last year.
We have reduced our spending levels, made them more efficient, as you can see by the results that we’re describing today, and that will continue. We’ll continue to make progress on OpEx. And so the combination of those will help us get to that last mile through that last mile to profitability by the end of this year.
Operator: [Operator Instructions] The next question comes from Arsenije Matovic with Wolfe Research.
Arsenije Matovic: This is Arsenije for Josh. Thanks for taking the questions. How should we think about the contribution from the subscription pricing increase rolling through existing subscribers in terms of 20% subscription revenue growth guidance? Is there a way to parse out what the contribution from the pricing uplift will be versus expansion with existing subscribers and new lands?
RJ Pittman: The contribution from the price increase we did last year in the existing subscriber base is about half of the net dollar expansion rate. And so that’s how I think about the existing base as they’re coming through and growing in 2024. Half comes from price increase and then the other half comes from, call it, the organic expansion of those accounts. And then, of course, for all the new customers, they’re all seeing today’s current pricing. And so then about on a total population point of view, about half of the growth in subscription revenue is coming from the existing subscriber base, again half of that from price, half of that from organic and then growth and then half coming from new subscribers added during the year.
Arsenije Matovic: And then a quick follow-up on the Genesis initiative. With that set for completion in winter of 2024 coming off of the release of Property Intelligence and understanding that while today it won’t change your pricing plan, do you think that once the entire initiative is completed, it will drive more uplift through pricing as an add on to existing subscriptions or will it have a larger impact from being a driving force to convert non-paying to paid subscribers or driving new paid subscribers that aren’t existing users?
RJ Pittman: And it’s going to be a combination of things in this one for sure. First, there’s no question as we continue to roll a portfolio of high impact, high powered AI features and functionality, and boy, we have a lot coming. And the reason we have a lot coming is, one, we’ve been working on this for more than a decade, and two, we have an extraordinary spatial data library with 38 billion square feet of digitized space and digital information about the physical world that for an AI platform is sets us apart. And it really is a treasure trove of opportunity to create really high value add-ons as you spoke about. This is going to drive premiums in subscription. It’s going to drive premiums in some tiers of subscriptions we’ll offer as well as add-on pricing to come without a doubt And having said that, we’re very careful about how we manage this, because we do not believe in arbitrary price hikes and things of that nature on our customers.
We’re bringing our customers along on the journey, and we think very carefully about making sure that the value we’re delivering far exceeds the prices we’re paying, that our customers are paying and if we’re making any price adjustments that again that ROI is really high for them. And so, we keep that in pretty clear balance here in ’24, but we’re absolutely creating headroom and upside because we think the value that we’re going to be delivering in the back half of the year and going into ’25 is going to be exponential. So a lot of upside for their price oriented revenue growth.
Arsenije Matovic: And just very briefly, if I can sneak one more in. Looking at inventory down quarter-over-quarter, should we assume there isn’t much Pro2 left in inventory and that is just lower with Pro3 being a bigger portion than it has been in the past? Thanks.
JD Fay: It’s true that the Pro2 inventories are declining and the Pro3 inventories are taking over more of that balance, and that is, as you suggested, is by design as we’re shifting over the business to the newer camera, and that’ll just continue throughout this year. Also last year, we had some build up because we were building or starting a new production line for Pro3, and we’re priming the pump for those initial volume sales that we had in the back half of last year. So those transition elements don’t exist anymore for ’24.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mike Knapp for any closing remarks.
Mike Knapp: Great. Well, thanks, everyone, for joining us today. As always, we appreciate your interest in Matterport and we look forward to speaking with you on our next earnings call. Thanks and goodbye.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
